Trumponomics: Inflation Cools To Lowest Level In Months Amid Talk of Rate Cuts

President Donald J. Trump’s economic agenda is showing tangible results as inflation cooled more than expected in January, easing pressure on American households and boosting optimism that interest rate relief may be on the horizon.

Inflation Falls Below Expectations

The Consumer Price Index (CPI) rose 2.4% year over year in January, according to the Bureau of Labor Statistics. That represents a 0.3 percentage point decline from December and marks the lowest annual reading since May 2025, CNBC reported.

Core CPI — which strips out food and energy — increased 2.5% annually, matching economists’ projections. On a monthly basis, overall prices rose 0.2%, while core prices climbed 0.3%, both in line with forecasts.

The cooling data arrives after months of dire warnings from critics who claimed President Trump’s tariff policies would unleash a new wave of inflation. Thus far, those predictions have not materialized in broad-based price spikes.

Markets Bet on Rate Cuts

Financial markets responded immediately. Treasury yields declined, and traders ramped up expectations that the Federal Reserve could begin cutting interest rates as early as June.

According to the CME Group FedWatch tool, the probability of a June rate cut jumped to approximately 83%.

“This is great news on inflation,” Heather Long, chief economist at Navy Federal Credit Union, said.

“Inflation fell to the lowest level since May, and key items such as food, gas, and rent are cooling off. This will provide much-needed relief for middle-class and moderate-income families,” she added.

Key Household Costs Moderate

Shelter costs — which account for more than one-third of the CPI basket — rose 0.2% in January, while the annual rate slowed to 3%. Housing remains a major contributor to inflation, but its pace of increase has moderated significantly.

Food prices ticked up 0.2% for the month, with increases in most major grocery categories. Energy prices, however, fell 1.5%. New vehicle prices edged up 0.1%, while used cars and trucks declined 1.8%.

While tariffs have had a noticeable impact on certain imported goods such as furniture and appliances, the core necessities driving family budgets are showing signs of stabilization.

“The tariffs have had a clear impact on products such as furniture and appliances, but the key items in many family budgets are cooling off,” Long said.

Growth Remains Solid

The broader economic picture suggests resilience. The Federal Reserve Bank of Atlanta GDPNow tracker estimates fourth-quarter growth at 3.7%, indicating the economy ended 2025 on strong footing.

Inflation, while still above the Federal Reserve’s 2% target, has steadily moved closer to that benchmark. Job growth has been modest — averaging 15,000 jobs per month last year — but consumer spending held steady through much of 2025 before flattening toward the holidays.

Federal Reserve officials are expected to hold rates steady for now after cutting three times in the latter half of 2025. Leadership changes are also underway at the central bank, including the anticipated appointment of Kevin Warsh as chair-designate, who is widely viewed as more supportive of lower rates.

Treasury Secretary Scott Bessent struck an upbeat tone in comments to CNBC, forecasting an “investment boom” as inflation trends toward the Fed’s target by midyear.

“We’ve got to get away from this idea that growth automatically has to be tempered down, because growth, per se, is not inflationary,” Bessent said.

“It’s growth that leaks into areas where there’s not sufficient supply, and everything this administration is doing is creating more supply.”

Relief After Years of Price Pressures

The January CPI report, delayed briefly due to the partial government shutdown, offers a measure of relief to American families who have endured years of elevated prices.

While the Federal Reserve pays closer attention to the Commerce Department’s Personal Consumption Expenditures (PCE) index — with the next reading due Feb. 20 — January’s CPI data strengthens the case that inflation is moving in the right direction under President Trump’s second-term economic strategy.

After persistent skepticism from critics, the latest numbers suggest that growth, supply-side expansion, and disciplined fiscal priorities may be delivering exactly what the administration promised: cooling inflation without sacrificing economic momentum.